CCP 03/2

Table of Contents

I. INTRODUCTION

II. ADHERENCE TO THE REPORTING OBLIGATIONS

III. MONITORING TRANSACTIONS

IV. ISSUES ARISING FROM SPECIFIC TRANSACTIONS

UMRs
Prior Consultation

V. IMPROVING NOTIFICATION, CONSULTATION AND REPORTING PROCEDURES

APPENDIX I

APPENDIX II

I. INTRODUCTION

1. The CSSD was established by the FAO in 1954 to monitor international shipments of surplus agricultural commodities used as food aid in order to minimize the harmful impact of these shipments on commercial trade and agricultural production. Over the years, members of the CSSD have developed a comprehensive set of rules and procedures designed to assist aid-supplying countries to account for and identify the flow of food aid shipments. These rules, endorsed by the major suppliers of commodity assistance, are embodied in the handbook entitled: Principles of Surplus Disposal and Consultative Obligations of Member Nations.¹ This report of the Consultative Subcommittee of Surplus Disposal (CSSD) covers activities for the period from September 2000 to October 2001 (435^th to 444^th meetings).

2. The Principles set out detailed procedures for reporting food aid to the CSSD by aid-supplying countries including notification of the various categories of food aid, prior consultation with other exporters and the establishment of usual marketing requirements (UMRs). The reporting obligations of aid-supplying countries vary according to the type of food aid supplied and whether governments, private charitable organizations or multilateral agencies are the vehicles for distribution. Meetings of the Subcommittee are held on a quarterly basis to keep track of the continual flow of food aid reported to the CSSD, however, much of the work of the Subcommittee is done in bilateral consultations between formal meetings. The CSSD is located in Washington D.C. and is serviced by the staff of FAO’s liaison office. ²

3. Officers elected during the review period:

4. From 1 September 2000 to 1 November 2002, CSSD members reviewed 98 notifications of food aid transactions. During CSSD meetings a number of questions were raised about consultation and notification obligations, the level of UMRs and other matters related to the reporting procedures for food aid. As requested by the CCP, the CSSD has attempted to improve data collection and analysis of food aid transactions by streamlining bilateral consultation communication and familiarizing delegations with the notification procedures of the CSSD.

II. ADHERENCE TO THE REPORTING OBLIGATIONS

5. The reporting procedures of the Subcommittee, formulated and revised over the past 46 years, rely on transparency. This is achieved through the notification process whereby aid-supplying countries which adhere to the Principles, report to CSSD with information about their food aid transactions with recipient countries. For some types of transactions, aid suppliers are obliged to consult with other CSSD members in advance. The different types of transactions are listed in a Register of Transactions (Appendix II) and comprise the more common kinds of assistance such as government-to-government grants for free distribution, grants for sale in the open market, concessional assistance and monetary grants. In order to ensure that the commodity supplied does not displace normal commercial trade, the consultative process involves the establishment by the aid-supplying country of a benchmark import level known as the usual marketing requirement (UMR). The UMR is a commitment by the recipient country to maintain its normal level of commercial imports, in addition to the food supplies as a grant or concessional shipment. The UMR is based on average commercial imports over the most recent five-year period for which statistics are available. In certain circumstances, the UMR can be waived or reduced to take into consideration unusual situations such as severe drought, floods, balance of payments difficulties or the absence of reliable import data.

6. While aid-suppliers are obliged by the CSSD rules to engage in prior consultation, notification and the establishment of UMRs for a broad list of concessional transactions, there are instances where an official notification of transactions is sufficient. When food aid is shipped to meet an emergency situation, for example, or when the shipment is of a relatively small size or is distributed through a private charitable organization or a multilateral body such as the World Food Programme, the supplier need only provide a notification on an ex post facto basis. The CSSD reviews these notifications at its regular meetings, allowing other members, particularly those that are not part of the consultative process, to participate in the review process.

7. Issues discussed in the Subcommittee are generally resolved by consensus. At times questions raised in committee are referred back to capitals. They may be subject to additional bilateral discussion by the parties concerned. Most suppliers of food aid and commodity assistance follow the rules and procedures set out in the Principles.

III. MONITORING TRANSACTIONS³

8. CSSD members have noted a significant drop in the volume of food aid transactions being notified to the CSSD in 2000 and 2001: from 7 854 000 metric tonnes in 1999 to 507 000 metric tonnes in 2000 and 442 000 metric tonnes in 2001. The United States and the EC continue to be major donors but were absent from the transactions reported to the CSSD in 2001. The largest share of the food aid transactions reported was held by Japan (51 percent). It is therefore stressed that the data on notified food aid transactions presented here reflect only a very partial picture of global food aid.

9. In 2001, the CSSD reported declines in all commodity categories except rice, which increased from 11 000 metric tonnes in 2000 to 187 900 metric tonnes in 2001. Wheat and wheat flour continue to be the major commodity in the notifications, followed by rice and other grains (Table 1).

10. The CSSD Register of Transactions, as revised and approved at the 113^th Session of the FAO Council, now includes 16 types of food aid transactions. Of those transactions notified to the CSSD, direct government to government transactions remained the most frequent type used, in terms of food aid volume. Food aid supplied for free distribution directly to the final consumers in the recipient country (Type 1) declined from 109 715 metric tonnes in 2000 to 49 700 metric tonnes in 2001. Type 2 transactions, which are grants for sale in the open market of the recipient country, accounted for about one third of the total volume of transactions in 2001, similar to the 2000 percentage Transactions through private charitable organizations, Type 5, comprised 0.8% of the total volume with 3,362 metric tonnes. Type 6, transactions through the World Food Programme, dropped from 19, 944 metric tonnes, 3.9 percent of the total volume in 2000 to 11 767 metric tonnes, 2.7 percent of the total volume in 2001. There were no transactions notified to the CSSD under the categories Type 1&2 as has been customary in years past.

11. Several CSSD members have expressed concern over the drop in food aid notifications since 2000 since it prevents the Subcommittee from fulfilling its mandate to ensure that food aid is not having a negative impact on the flow of commercial transactions of agricultural products. Although genuine food aid is an important tool of humanitarian assistance to combat hunger, a number of CSSD members have expressed concern that non-legitimate food aid is being used as a form of a marketing tool or export assistance program for surplus commodities in donor countries, and as disguised export subsidies, in circumvention of commitments under the WTO Agreement on Agriculture. To that end, in December 2001 and March 2002, various CSSD members also discussed the need to better define “emergency food aid”, while acknowledging that the establishment of such a definition did not fall under the purview of the CSSD.

12. In the discussions, several CSSD delegates also referred to the discussions currently taking place between WTO members in the context of the agricultural negotiations to explore ways to improve disciplines applicable to food aid transactions, so as to ensure that international food aid transactions will be based on humanitarian considerations and the needs of recipients, without distorting normal trade patterns. In that respect, some CSSD delegates noted that it is expected that there will be a need for a timely notification mechanism of food aid transactions by the CSSD to the WTO, which would constitute the basis for the enforcement of any disciplines to be agreed between WTO members in that forum. They added that this can result in increased cooperation between FAO/CSSD and the WTO.

IV. ISSUES ARISING FROM SPECIFIC TRANSACTIONS

13. During the seven CSSD meetings held in the reporting period, a number of issues were raised concerning specific food aid transactions, trends and CSSD notifications. In June 2002 at the 442^nd meeting, Canada informed the Subcommittee of its concerns over notifications regarding US transactions with Ecuador, Peru and Vietnam, and the potential damage by these concessional sales, saying these could have a negative impact upon commercial sales from Canada. The United States replied that written responses to the Canadian concerns were being cleared, and that the United States does provide additional information about the purpose of the donation or concessional sale, the targeting of the recipients of that food aid, as well as, some information on the Usual Marketing Requirements. The United States felt that this analysis had been complete in ensuring that the United States would not harm commercial sales or local production.

14. In September 2002, at the 443^rd meeting, Australia expressed concerns over the USDA’s announcement of donations of non-fat dry milk to the Philippines, Cambodia and Vietnam. Australia was concerned that the US allocations of non-fat dry milk had almost doubled from 23 317 metric tonnes in US financial year 2001 to an expected 57 080 tonnes in US financial year 2002. Australia also expressed concern that the United States had undervalued its product. The United States noted that it was donating more non-fat dry milk globally, especially in 2002. One reason for this was that non-governmental organizations were making arrangements for non-fat dry milk to be processed in the recipient country and converted into a packaged drink that would be fed directly in schools in the recipient countries. The United States noted that this responded to humanitarian concerns, including feeding school children. In October 2002, at the 444^th meeting and in November 2002, at the 445^th meeting, the European Community expressed similar concerns. In particular, the European Community further questioned the United States about USDA’s announcement of 31 October 2002 that 200,000 metric tonnes of non-fat dry milk would be made available in fiscal year 2003 for foreign food aid donations under its surplus disposal program (Section 416(b)), representing 20 percent of total non-fat dry milk traded in the world market.

15. Other issues raised included the role and nature of the PVO’s which were becoming more directly involved in the food aid programs of several countries. Australia pointed out, for example, that there are US based PVO’s that are subsidiaries of commercial entities, and it is difficult to believe that the “non-profit division” operates separately from the “for-profit division” within the same company, especially when making food aid transactions using commodities the company produces. This further complicates analysis of food aid and concessional sales transactions. At several meetings over the reporting period, CSSD delegates representing recipient countries made specific efforts to express gratitude for food aid deliveries.

16. Throughout this reporting period and following continued discussions from the previous reporting period, recurring concerns were expressed about potentially trade-distorting food aid transactions, primarily from the United States. Some CSSD members in particular pointed out that a large part of US transactions were on a concessional loan basis and stated that food aid should instead be granted in full grant form.

UMRs

17. At numerous meetings it was stressed that delegations should use the most recent figures when calculating UMRs and cite the reference for the data source.

18. Peru, along with Austria, Bangladesh, Bolivia, Brazil, Costa Rica, Cuba, Ecuador, Egypt, Ghana, Guatemala, India, Indonesia, Iraq, Jamaica, Lebanon, Malawi, Mexico, Myanmar, Nigeria, Pakistan, Panama, Paraguay, Spain, Switzerland, Turkey and Uruguay, did not subscribe to Resolution 2/55. This can be verified in FAO’s publication “Principles of Surplus Disposal and Consultative Obligations of Member Nations”, pages 58-60. Peru argued at several meetings that: the UMRs themselves exert undue economic pressure on the recipient countries; that this pressure destroys any benefits that countries may receive from food aid itself; that the application of the UMRs completely distorts the humanitarian aspect of food aid as recognized by all members of the CSSD; that the FAO Principles of Surplus Disposal indicate very clearly those circumstances under which UMRs are not applicable, such as when a country is confronting economic and balance-of-payment difficulties (page 10, paragraph 24). Peru further argued that UMRs interfere negatively with the development plans of recipient countries and constitute an undue burden on them, and that it should be kept in mind, as expressly stated in the above-mentioned publication, that the Principles are not a binding instrument (page 2).

Prior Consultation

19. In October 2000 at the 435^th meeting, Canada noted that some transactions announced in US news releases had to their knowledge not been the object of prior notifications. One such example was the 300,000 tones of wheat to Russia announced in March 2000. Another concern was that at times the deadline for comment on transactions had been less than the 14 calendar days stipulated in the CSSD procedures: for example, on a notification for corn, soybeans and soybean oil to Pakistan only five calendar days were allowed. In March 2001, Australia noted that it did not receive prior consultation from France regarding shipments of wheat and wheat flour food aid to Morocco (60 000 tons); Yemen (7 300 tons); Madagascar, (1 460 tons); Ethiopia (6 000 tons) and Egypt (25 550 tons) dated December 2000 and referred to CCP/SD:00/67-00/71. France responded in writing to the Secretariat that France did indeed notify directly, capital to capital as was the method used then, including members of the European Commission, Argentina, Australia, Canada and the United States. France further stated that the CSSD Secretariat had also been notified and the notifications for Morocco, Yemen, Madagascar, Ethiopia and Egypt donations were sent by the Secretariat to all the CSSD delegates on 8 December 2000.

V. IMPROVING NOTIFICATION, CONSULTATION AND REPORTING PROCEDURES

20. At the 63^rd Session of the CCP, the CSSD was encouraged to improve data collection and analysis, and to coordinate the use and availability of such data with the Food Aid Committee and the World Food Programme. A Bilateral Consultation Commodity Table has been created for use by delegations to indicate which countries would like prior bilateral consultation on which commodities. The discussion in the Subcommittee presently surrounds the question of how to streamline the prior bilateral consultation process with two options on the table: 1. hold consultations directly between capitals or 2: hold consultations between CSSD delegates.

Table 1. Commodity Transactions reported to the CSSD, by commodity group, 1992 to October 2002 (000 metric tons)

Table 2 - CSSD Notifications as compared to Global Food Aid Deliveries (000 MT)

APPENDIX I

(As of October 1, 2002)
Members (41)

International Bank for Reconstruction and Development (IBRD)
International Cotton Advisory Committee (ICAC)
International Federation of Agricultural Producers (IFAP)
International Monetary Fund (IMF)
Organization of Economic Cooperation and Development (OECD)
Organization of American States (OAS)
United Nations Economic Commission for Latin America and the Caribbean (ECLAC)
 

APPENDIX II

REGISTER OF TRANSACTIONS

1. Donations of domestically produced commodities from a government to a government of an importing country, an intergovernmental organization or a private institution for free distribution directly to the final consumers in the importing country.

2. Donations of domestically produced commodities from a government to a government of an importing country, or an intergovernmental organization or a private institution for distribution, by means of sale on the open market of the importing country.

3. Monetary grants by the government of an exporting country to an importing country, for the specific purpose of purchasing a commodity from the exporting country.

4. Monetary grants by a government either to a supplying country (or countries) or to a recipient country for the specific purpose of purchasing a commodity from an exporting country (or countries) or from local suppliers in the recipient country for delivery to/in the specific recipient country.

5. Monetary grants by a government to an intergovernmental organization or to a private institution for the specific purpose of purchasing commodities in the open market (including local purchase) for delivery to/in eligible recipient countries (developing countries).

6. Transfers of commodities under the rules and established procedures of the World Food Programme.

7. Sales from the currency of the importing country which is not transferable and is not convertible into currency of the importing country which is not transferable and is not convertible into currency or goods and services for use by the contributing country.

8. Sales for the currency of the importing country which is partially convertible into currency or goods and services for use by the contributing country.

9. Government-sponsored loans of agricultural commodities repayable in kind.

10. Sales on credit in which, as a result of government intervention, or of a centralized marketing scheme, the interest rates, period of repayment (including periods of grace) or other related terms do not conform to the commercial rates, periods or terms prevailing in the world market. In particular with respect to period of repayment, credit transactions are distinguished as follows: (a) 10 years or more; (b) over 3 years and under 10 years.

11. Sales in which the funds for the purchase of commodities are obtained under a loan from the government of an exporting country tied to the purchase of those commodities, distinguished as follows with respect to period of repayment: (a) 10 years or more; (b) over 3 years and under 10 years.

12. Transactions under categories 1 to 4 and 7 to 11 subject to tied Usual Marketing Requirements or to tied Offset Purchasing Requirements.

13. Transactions under categories 1 to 4 and 7 to 11 subject to tied purchase of fixed quantities of the same or another commodity from the exporting country.

14. Government and non-government sponsored barter transactions not involving price concessions.

15. Non-government sponsored barter transactions involving price concessions

16. Sales for non-convertible currency non involving price concessions.

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¹ This handbook, issued in 1992, is available in English, Spanish and French. It was supplemented in 2000 by an annex that reflects changes in the multilateral trade environment since 1992, and specifically those relating to WTO. This up-dating exercise was endorsed by the FAO Conference in 1997.

² The current Secretary of the Subcommittee is Mr. Robert Patterson.

³ Based on data notified to the CSSD for calendar year 2001.